The notion of the offence of “failing to prevent economic crime” is one that has been brought to the table before, but for whatever reason, laid dormant until now. Following the Serious Fraud Office’s recent success at securing their third and largest Deferred Prosecution Agreement (“DPA”), requiring Rolls Royce to pay a penalty in the UK of £471m, the debate for the expansion of corporate criminal liability has been revived with a real bang.
On 13 January 2017, the government began their consultation on the expansion of corporate liability for economic crime. They have published a call for evidence on this subject from practitioners that is due to be submitted by 24 March 2017. Currently, the law provides a mechanism through which a corporation can be prosecuted for failing to prevent bribery or corruption. From July this year, a similar law will exist in order to criminalise the corporate failure to prevent tax evasion. We can now expect further reform to the law to include the criminalisation of the failure to prevent economic crime more broadly, to include offences such as money laundering, fraud and false accounting. However, what we do not know is exactly what form this legislation will take.
The biggest challenge lies within the law as it currently stands: with the exception of bribery and corruption, corporate criminal liability can only be made out if the identification doctrine is satisfied. In other words, to secure a conviction against the company, prosecutors would need to prove that the individual concerned in the criminal wrongdoing is the “controlling mind” of the company. This model has been extremely challenging, particularly when investigating larger companies with complex management structures. In some cases, the model has been used as a tool by senior officers to distance themselves from crimes committed during the course of business, thus allowing the company to escape liability and promoting unhealthy corporate governance.
The answer to this challenge came in the form of Section 7 of the Bribery Act 2010, which, after a slow start, has gained real momentum in the past couple of years. Rather than having to establish liability through the identification doctrine, the company faces prosecution of the strict liability offence of failing to prevent bribery and corruption. An attractive alternative for the company would be to negotiate a conclusion of the matter by way of a DPA. A similar model will be followed for the corporate failure to prevent tax evasion.
Why then, is this not the obvious route through which to enshrine the corporate failure to prevent economic crime? Some critics suggest that criminal liability is unsuitable for corporates, and that regulatory reform is required in order to strengthen deterrence to misconduct in the workplace.
Others suggest that the option to enter into a DPA allows the company to escape the punitive measures enforced in the criminal courts. The government has therefore set out five options for consideration in order to deal with the expansion of the offence most satisfactorily:
- Amendment of the identification doctrine
- Strict (vicarious) liability offence
- Strict (direct) liability offence
- Failure to prevent as an element of the offence
- Investigate the possibility of regulatory reform on a sector by sector basis
The call for evidence asks 16 specific questions to be answered in order to inform the direction that their further consultation will take. Unfortunately, businesses now face great uncertainty for the duration of the consultation. Our prediction is that “failure to prevent” will form at least part of a new offence, requiring the company to actively enforce measures to prevent economic crime in the workplace. In any event, further expansion of corporate liability will have consequences for most business – we await further news from the government with baited breath.